The lumber is conveyed from the planer to the grading table where it is inspected by graders. They look for natural defects as well as production defects in the wood. Some of the things they look for are the size of knots, wane, splits, warp, skip and lumber size.
The graders then mark each piece of lumber with a neon crayon that is read by a grade reader. The lumber may be any one of several grades depending on the defects in the wood. In general the grades range from #1 (the best) to #4 (the worst). There are also many other specialty grades that depend on certain characteristics.